H & R Block Inc (HRB) 2002 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is

and I will be your conference facilitator today. At this time I would like to welcome everyone to the H&R Block fiscal two year-end earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. At this time I would now like to introduce Mr. Mark Ernst,

the President and Chief Executive Officer. Mr. Ernst, you may proceed.

Great, thanks. Good afternoon and welcome. Appreciate you joining us to discuss our fiscal 2002 year-end results. Joining me is Frank Controneo, our SVP and Chief Financial Officer.

Also with me are David Byers, Chief Marketing Officer, and

, Vice President and Treasurer. Mark Barnett, our Director of Investor Relations is recovering from surgery and can't be with us today, but I suspect he's listening, so Mark, we hope you're doing well.

Finally joining us today is Jeff Yabuki, who since the last time we had a call has been named Executive Vice President and Chief Operating Officer for the company.

Jeff now has operating responsibility for all of our H&R Block branded businesses, as well as our major support functions, such as technology and marketing.

Before I begin my formal remarks, I need to remind you that various remarks we make - we may make about future expectations, plans and

prospects for the company constitute forward-looking statements within the meaning of the Federal Securities Laws, and are based on current information and expectations. These statements speak only as of today. Actual results may differ materially from those indicated by these forward-looking statements,

as a result of various important factors, including those discussed in our fiscal year-end press release, and in H&R Block's filing on Form 10-K and Form 10-Q, which are on file with the SEC.

Finally, before we start, I just want to say, I apologize, I understand our release got out about 30 minutes

late on the wires, so I realize some people may have not had as much time as usual to absorb everything that's in there. So we'll try to cover any questions you may have as we go.

I'm pleased to report today that we had solid financial results for fiscal 2002. Reported net earnings for fiscal 2002 were

$434.4 million, which represents a 55 percent increase from $281.2 billion for the prior year. As we stated previously, this year includes -- or excludes -- the amortization of goodwill and certain intangible assets in accordance with the earliest option of FAS-141 and 142. This change

reduced year-over-year expenses by $47.9 million, net of taxes. Excluding this change, net earnings improved 32 percent. On a diluted per share basis, net earnings rose 52 percent, or 79 cents per share, to $2.31 cents per share from $1.52 per share last year.

Excluding the effect of FAS 142, diluted earnings per share rose 30 percent.

Strong results in our U.S. tax operations and mortgage operations are the key contributors to this improved performance. For the year, revenues increased 11.3 percent to $3.3 billion, compared to 3.0 billion last year.

Our reported reflect the earlier -- or the required adoption of EITF01-9 and EITF01-14. The net effect was to reduce revenues slightly, with no impact to the bottom line. Frank Controneo is going to discuss those changes with you in detail a little bit later.

In tandem with revenues and net earnings, our cash flow has continued to trend a strong year- over-year growth. Cash earnings, as measured by GAAP net earnings, adding back the after-tax amortization expense of acquired intangible assets, improved $108 million, or 29 percent, to $474 million, or $2.52 cents per diluted share.

This compares to last year's cash earnings of $367 million, or $1.98 per diluted share. Reflecting our strong financial performance, the board of directors of H&R Block has increased the quarterly cash dividend 12 and-a-half percent to 18 cents per share per quarter.

I would like to take a moment to personally thank

our thousands of associates, tax and accounting professionals, who have served our clients with distinction, financial advisors who are working hard in the face of a difficult market environment, mortgage professionals who are setting the standard for how to serve clients' mortgage needs, and the many people who support these people to do their jobs every day. The results that I get to talk about today

only happen because of your tremendous efforts. Before discussing the financial results of our business segments, let me describe briefly several -- or comment briefly on a couple key areas of focus that we had during the year. Strategically, we focused this year on a number of efforts that are important to us for the long term. Key among them are creating an integrated client experience through our tax, mortgage,

and financial advisors businesses, and using advice as a key differentiator. Results were OK, with encouraging performance from our mortgage and financial advisors cross-sell efforts, but with substantial progress remaining to be made in our ability to provide customized advice to our clients.

However, the importance of this integration is beginning to emerge.

For clients who opened an IRA with us last year, we saw a five percentage point improvement in retention rates this year in the tax business, compared to the prior year for comparable clients. For clients who worked with us in our retail mortgage business,

even if they ultimately did not receive a mortgage through us, we saw from six to nine percentage points of increased retention in our tax business. As you know, we lose more than 25 percent of our tax clients every year. This early indication of an increased

level of client loyalty that we are seeing is very encouraging. While its still early, this seems to be evidenced from a large number of client interactions that by acting as our client

and financial partner, we can provide substantial benefits to our overall business.

An important objective for us this year was to better manage the margins in all of our businesses with particular

emphasis in tax services. Today I'm pleased to report we achieved a 27.8 percent operating margin in our U.S. tax services business compared to 26.7 percent last year, a 110 base point improvement. This was accomplished despite the decision to make investments into this business that we believe will pay off over time.

Now I'm going to ask Jeff Yabuki, our Executive Vice President -- Chief Operating Officer, to review the financial results from a number of our business segments.

Thank you, Mark.

Our U.S. tax operations, which includes U.S.-based tax services, interest in refund anticipation loans, and e-solutions, reported revenues of $1.8 billion, an increase of

$208 million or 13 percent over last year. Of the total increase over last year, U.S. tax services revenues accounted for 80 percent of the growth or $165.8 million. Revenues from RAL participations contributed $26.3 million, and e-solutions contributed $18 million of the -- of the year-over-year improvement.

Pre-tax earnings increased $99.4 million or 23 percent to $533.5 million, compared to $434.1 million last year. Of the total increase over last year, U.S. tax services pre-tax earnings accounted for 62 percent of the increase or $62 million.

RAL participations contributed $33.8 million of the year-over-year improvement, and e-solutions pre-tax losses narrowed by $3.5 million.

Volume from tax preparation-related fees in company owned and franchised offices was up $204.1 million or 10.8 percent over the prior year. The average fee for tax preparation related fees rose

9.1 percent to $121.83. Compared to last year, the number of clients served increased 2.7 percent.

While our unit growth was at the low end of our expectations, we were -- we were pleased that we grew at a rate faster than the overall market. The IRS recently reported that for the tax period January 2

through May 17, 2002, total returns filed increased only three-tenths of one percent over the prior year. This compares to preseason estimates that the individual tax market would grow between 1.5 and 1.9 percent for the season.

For the same period, tax services experienced a growth rate of 2.7 percent in tax

returns prepared and expanded its market share to an all-time high of 14.1 percent -- an increase of one-tenth of one percent in market share over the prior year.

IRS data also indicates that the overall share of the market using paid preparers was up substantially. While this is consistent with our own research on market trends,

we would caution that the early IRS data that's been released is preliminary and has proven in the past to be revised when final information comes available.

Another factor impacting our client growth this year was a larger-than-expected decrease attributable to the full roll-out of our tracking system methodology. When we discussed our expectations at the January

investor conference, we believed that the impact on unit growth of the roll-out for the year would be to decrease actual client growth by about 100 basis points. And since there is no impact on revenues, that change would have the equivalent effect of increasing reported price by the same 100 basis points.

After reviewing the actual results for the year,

we believe that the negative impact of the system roll-out was greater than we originally anticipated, but likely within a range of 100 to 140 basis points. On the basis of this information, we estimate that real client growth for the year was 100 to 140 basis points higher than reflected in this year's officially reported performance.

Another contributor to our top line performance was 9.1 percent increase in average charge for the year. The increase for the year was composed of a planned increase of about five percent, an increase in client complexity, which contributed two to three percentage points to the increase, and lastly, the tracking system methodology change

added between one and 1.4 percentage points to the overall price increase. Based on the early complexity shown in this year's price increases, we decided not to do any system-wide roll-out of demand pricing. We will continue to examine the most appropriate way to capture this incremental pricing opportunity in the future.

Amidst our continuing shift in attracting a more complex client, and an environment of increasing prices, our company-owned client retention rate improved 11 basis points to 71.3 percent. While this increase was below expectations, we are pleased that the retention rates in our highest value segments are increasing the fastest.

We will be putting incremental focus on client retention in 2003, and we'll share our plans with you later in the year.

On the new business front, we experienced a 5.5 percent increase in new business over the prior year, with 88 percent of our net client growth coming from clients with income greater than $30,000.

Let me touch briefly on our RAL participation results. Pre-tax earnings from RAL participations reached $97.1 million in fiscal year 2002, topping the prior year's earnings by $33.8 million. The pre-tax margin for RALs increased significantly, 61 percent this year, versus 47 percent last year.

Bad debt expense was 25 basis points lower than last year, largely due to operational efficiencies we gained during the year.

Let me turn now to our E solutions initiatives, which include our number one rated tax cut software, and our online tax solutions. Total revenues were $68.9 million, compared with $50.9 million last year,

an increase of 35 percent. The pre-tax loss was $13.2, compared with a loss of $16.7 million last year, a 21 percent improvement. Software was profitable this year, offset by losses from our online tax services. We continued to make progress bringing the full range of tax solutions to do-it-yourselfers,

as well as allowing our retail clients the option of interacting with us over the Internet.

The software business achieved 6.6 percent unit growth as a result of large increases in tax cut estate, and our tax cut home and business products. We are extremely pleased with the enhancements and product features in the integration of Block-branded tax, financial and mortgage advice into the product experience.

Our ability to offer financial services and customize advice for the tax software user is a differentiating factor that will allow us to continue to build client loyalty and share in the category.

This year, software revenues of 54.3 million were 10.2 million, or 23 percent better than last year. Our online products provide a

client's access to financial services, as well as allowing clients an opportunity to complete a financial plan, investigate a mortgage, or fund an IRA, all at their own discretion. These types of services reinforce the advisory position of the company. The number of registered online users rose 54 percent to 1.4 million users,

compared to 955,000 users last year. Our improvements in user experience translated to a higher conversion rate as well.

Paid users for all online products were up substantially over the prior year. We introduced an online pricing strategy, which included components of both demand pricing and also a back-end revenue model similar to software, that allowed us to build revenue strength in this line of business.

While we continue to believe that the online space is attractive, we do anticipate a slowing in category growth over the next several years. Our ability to differentiate on real-time customized advice will bode well for our online clients and the company. Our online professionally-based continue to grow, and expand our ability to work with clients in the way that they choose.

We continue to attract online clients with more upscale demographics, and most importantly, 85 percent of the new online clients were new to H&R Bloch.

Our international tax operations, which include Canada, Australia, and the United Kingdom, generated revenues of 78.7 million, a .03 percent increase over the prior year.

Pre-tax earnings improved by $1.1 million, or 17.7 percent, to $7.1 million, compared to $6 million a year ago. The results include an $800,000 goodwill write-down in the UK. Operational improvements contributed to strong year-over-year earnings performance from our Canadian operations.

Additionally, our tax operations in Puerto Rico doubled over the last year, and show strong promise for the future.

In our investment services business, fiscal 2002 was a very challenging year for our business, and the investment business in general. Steep declines in equity values, along with continued uncertainty on the global political front,

contributed to significant declines in overall revenue activity for the financial advisors unit. Revenues for the past fiscal year were $250.7 million, compared with the year earlier total of $472.4 million. The majority of the decline in revenues, approximately 65 percent of the drop, was the direct result of

lower margin interest income, resulting from significantly lower margin balances, and lower interest rates. The remainder of the decrease was attributable to lower retail trade volumes, and the impact of decimalization on our equity trading operation. The financial advisors business unit had a pre-tax loss of $54.9 million, compared with pre-tax earnings of $9.3 million in the prior year.

While the organization significantly reduced its expense structure over the past fiscal year, the expense saves were not relatively significant in comparison with the slide in revenues. The adoption of FAS-141 and 142 contributed $17.9 million to the year-over-year reduction in expenses. Given the dramatic changes

in the environment for our advisors business unit over the last two years, the management team is now clearly focusing the organization on building the revenue base.

The historic transaction-based equity orientation of the firm is being replaced with a broad-based planning and advice orientation that is consistent with H&R Block's tax and financial partner strategy.

Consistent with the changes, the organization has seen significant success with the fee-based brokerage account introduced in November of last year, with over 3,000 accounts and over a half a billion in assets. We are also beginning to see positive results from an expanded array of products and services, including the introduction of annuity products,

allowing us to compete with broader-based financial providers. This transition is one that will take time, and accordingly, the results for the upcoming year will continue to be challenging. Our strategy for the future is based on two key tenets. First, the operating environment and associated business model for the organization has fundamentally changed.

Second, we are not counting on a market recovery to stabilize the business. The financial advisors business is being managed consistent with those tenets.

Now, let me turn the call back to Mark for a review of our mortgage and business services operations.

Thanks, Jeff. In our mortgage operations, which primarily include Option One and H&R Block Mortgage,

which is our retail mortgage operation, both delivered exceptionally strong results. Fiscal year 2002 was an unusual year in that interest rates declined and stayed at low levels, thus loan sale premiums were at historic highs. For the year, our mortgage operations reported pre-tax earnings of $339.4 million, a

146 percent increase over the prior year. Fourth quarter pre-tax earnings grew 32 percent to $102 million compared to

in the third quarter of this year. Full-year revenues rose 77 percent to $734.9 million compared to last year, while fourth quarter revenues rose

26 percent to $226 million compared to the third quarter.

Several factors contributed to the increase in revenues during the year. Higher loan origination volume, representing $239 million of the increase, and improvement in loan -- in pricing for loan sales contributed $19 million of the increase.

Loan origination volume was

$11.5 billion, an increase of 77 percent over last year. Better pricing was primarily driven by the falling interest rates during the early part of fiscal 2002 and pricing discipline yielding wider spreads.

Servicing revenues grew a very strong 34 percent over last year and now accounts for

20 percent of mortgage operation revenues. As of April 30, 2002,

servicing portfolio was approximately $24 billion, an increase of $6 billion over last year.

For the full year, the operating profit margin within our mortgage operations increased to 296 basis points compared

to 232 basis points last year. For the fourth quarter, the operating profit margin rose to 310 basis points compared to 300 basis points in the fourth quarter last year and 267 basis points in this year's third quarter.

Increased cash flow on existing balance sheet securitization resulted in a write-up of the

residual assets on the balance sheet in the amount of $151.1 million during the fiscal year. This included $106 million of write-ups in the fourth quarter. Interest accretion from securitization residuals including the accretion of unrealized gain from other comprehensive income due to these residual write-ups increased

$37.3 million over fiscal year 2001.

monetizes the majority of the residual interest through the sale of net interest margin or NIM bonds. The NIM is expected to be outstanding for 24 to 30 months.

receives cash flow on its securitization residuals

after the NIM bond holders are paid. Due to the lower interest rate environment, many recent NIMs have been paying off 12 to 15 months early which has translated into increased cash collections and write-ups at

.

Our mortgage segment is a well-managed business that's growing stronger every quarter regardless of the interest rate environment.

We've made important strides this year in the improvement of the infrastructure of the retail operations to support the growth of the business and to better align with our tax and financial advisor networks. Additionally, we improved our closing ratios and cost of origination, both of which are key drivers of profitability in this segment.

It's important to note that H&R Block Mortgage Corp., our retail mortgage operations, was profitable each quarter this year. Pre-tax earnings grew $24.8 million to $16.6 million compared to a pre-tax loss of $8.1 million last year.

Turning now to business services,

fiscal 2002 revenues reached $416.9 million, an eight percent increase over last year's revenues of 386.2 million. The improvement over last year was due to a combination of factors including new acquisitions, revenues from new products in tax consulting, and an increase in wealth management revenues.

These favorable results were partially offset by a decrease in consulting revenues, following the events of September 11th.

Full year pre-tax earnings of $22.7 million were $6.8 million higher than last year. The improvement over last year is largely related to the impact of FAS-141 and 142,

as I had discussed earlier in the call, which improved the year-over-year comparison by $19.3 million. We continue to have amortization of $14.3 million related to intangible assets in this year's results.

Business services is another segment where we made important investments in long-term growth initiatives.

This year we complete two start-up acquisitions that will expand our product offering, and client segments in future years. In December, we acquired a controlling interest in a payroll processing company, and evaluation and corporate finance firm. Although pre-tax losses from these two start-ups were $6.7 million in fiscal 2002,

we believe that the services they provide will allow us to more fully meet the needs of our middle market clients over time.

Now I'm going to turn the call over to Frank Controneo, who's going to review the balance sheet and corporate items.

Thank you, Mark, and good afternoon. We concluded our year with a strong balance sheet, in line with our strong operating performance. Cash balances increased significantly,

and the valuation of our intangible assets was validated. Furthermore, we delivered our debt to capital target, while achieving our share repurchase goals. Several notable events occurred that impact the year-over-year balance sheet comparisons. First, our cash has increased at a year-end balance of 187.6 million for fiscal year 2001,

to 436.1 million for fiscal year 2002. The year-over-year increase is a result of increased cash flow from operations, and contributes to achieving our fiscal year 2003 committed debt-to-capital ratio of 35 percent, while providing an additional source of liquidity.

Residuals have increased $127 million,

for three main reasons. First, new securitizations of $26 million. Normal accretion of $34 million, and $151 million of write-ups during 2002. These have been offset by $67 million in cash received and a small write-down on certain residuals of $18 million.

As you know, residuals on the securitizations that received the final cash flows of a securitization. The large decrease in interest rates during 2001 has positively impacted the expected cash flow to the point where management believed it prudent to write-up the value of the residual securities.

Accounting for write-ups is different than accounting for initial residual, though the valuation methodology is the same.

The fair market value of a subsequent write-up of residuals is credited to other comprehensive income and deferred tax liability on an approximate 60/40 split. Both are then amortized into earnings over the remaining life of the securitization. The impact of the residual write-ups that we have taken during fiscal year 2002 is expected to add between

50 and 55 million to our pre-tax reported earnings in the mortgage segment in the upcoming fiscal year.

Margin debt balances are as shown on the balance sheet, receivables from customers, brokers, dealers, and clearing organizations decreased 36 percent from 1.3 billion to $845 million, related to market conditions

during the past year. The decrease in receivables was mirrored by a decrease in accounts payable to customers, brokers and dealers, from 1.1 billion to 903 million. This trend is consistent with the rest of the industry. As of May 2002, our margin balances appear to have stabilized, also consistent with industry trends.

As Mark mentioned earlier, several changes in accounting were adopted during fiscal year 2002. Our reported earnings reflect three notable changes in accounting standards. As previously reported, on May 1, 2001 we adopted FAS-141 and 142. Accordingly, the current year results do not include amortization of goodwill and certain intangible assets.

The effect of this change, net of tax, was 47.9 million, or 26 cents per diluted share. In addition, in the fourth quarter we adopted, as required, Emerging Issues Task Force, Issue No. 01-9, accounting for consideration given by a vendor to a customer. EITF 01-9 indicates

that discounts and rebates given to a customer should be characterized as a reduction of revenue. Prior to adoption of this standard, our practice was to include client discounts and rebates in expenses. The net effect of this standard, which primarily affected our software business, was to decrease our fiscal 2002 revenues by $44 million, and our fiscal year

2001 revenues by 33 million. Adoption of this standard had no effect on net earnings. Also in the fourth quarter of fiscal year 2002, we adopted, as required, Emerging Issues Task Force No. 01-14, income statement characterization of reimbursements received for out-of-pocket expenses incurred.

EITF 01-14 requires that out-of-pocket costs billed to clients be reported as revenues and expenses when billed. Prior to adoption of this standard, we included these out-of-pocket billings net in revenues. While the adoption of this standard had no effect on our net earnings, and increased our fiscal year 2002 revenues by 18 million, and our prior year revenues by 12 million.

The adoption of this standard impacted our business services segment only.

Goodwill and intangibles increased $55 million to $1.1 billion. The primary components of this balance are related to the previous acquisitions of HRBFA for 390 million,

and acquisitions in business services for 429 million. The year-over-year increase reflects several small purchases during the year, and no decreases related to amortizing goodwill. As discussed on prior conference calls, FAS-141 and 142 were both adopted effective May 1, 2001. As part of this

adoption, management was required to choose a date to perform an annual analysis of each business to determine if an impairment of goodwill exists. Management chose February 1st, and has performed its annual impairment testing and analysis. As of that date, no impairment exists. If performance continues as planned, management does not expect future impairments.

H&R Block's has two primary components, medium term notes, or approximately 750 million, and debt held by sellers of accounting firms of $164 million. Fifty-one million dollars of seller debt was repaid in 2002, and $52 million was issued related to new acquisitions. At April 30,, 2002,

our debt-to-total capitalization ratio was 40.4 percent, which is 90 basis points better than our target of 41.3 percent. As we've noted before, we are targeting a debt-to-capital ratio of 35 percent by fiscal year-end 2003. During 2002, we dedicated $462.5 million to

Treasury stock purchases. In addition to the proceeds from stock option exercises, this represents approximately $210 million of cash returned to shareholders. This included the repurchase during the fourth quarter of 2.6 million shares, at a total cost of $110.7 million.

As a result of the increase in market value of H&R Block's stock,

the appropriate computation increased the number of diluted shares to an average of 188.3 million for the year. Actual shares outstanding declined by approximately one million shares.

At the beginning of fiscal year 2003, we have 8.5 million shares remaining under authorization. We remain committed to share repurchase as a capital allocation tool.

We will continue to evaluate share repurchase versus other alternatives to maximize return on invested capital and shareholder returns.

The balance sheet reflects the solid perform

as reported is accurately valued and is healthy from both an equity and debt point of view.

Now I'll turn the call back to Mark who will discuss our earnings outlook for next year.

Thanks, Frank.

Looking into the new fiscal year, we believe that the outlook for fiscal 2003 to be very positive for our company. Historically, H&R Block has benefited from significant tax law changes. Since the recently passed tax legislation uses a phased-in approach, we believe the changes will continue to positively impact our tax business.

For planning purposes, we used cautious assumptions for setting spending levels, knowing that once tax season arrives there is little chance to reduce costs if revenue growth isn't what we had expected. Overall within U.S. tax, we were using a nine percent revenue growth rate in setting our spending levels and targeting a 60 basis point

improvement in our margins. This would allow us to again see double-digit earnings and cash flow growth from this business. While I caution you that these are very early plans, we expect an increasing amount of our tax revenue to come from unit growth instead of price increases.

We are pleased with our unit growth achievements, given the growth

of the overall tax market. Initially we have a sharper focus on retaining clients, coupled with the learning we've gained from testing over the past couple of years to help drive client acquisition. We will continue to work toward moving our brand somewhat more upscale, leading to increased overall complexity of our client base and, therefore, greater revenue per client.

Within our mortgage businesses, we expect 2003 to be another very good year. Based upon conservative assumptions about the interest rate environment, we expect earnings in mortgage to increase 10 to 15 percent over the prior year. While the interest rate environment doesn't have a dramatic effect on our level of originations, it does affect our

profit margins on loans originated and the performance of our retained interest. Our current planning assumption is for rates to move higher later in our fiscal year, moderating our profit growth as the year progresses. We continue to manage this business to optimize the cash generation from the business over time. This year

we expect that we will generate more cash than the business earns -- about $100 million more, resulting in a reduction in our residual interest balances by year-end.

We remain highly cautious in our outlook for the financial advisors business. Our revenue outlook is for a slight increase year-over-year.

For planning purposes, we have not planned for the market environment to improve. We expect to maintain this cautious view until we see a sustained improvement in market conditions. While we are taking what we feel to be very prudent actions on both the cost and the revenue generation side of this business to address our weak financial performance, we don't expect this business

to show meaningful results until our next fiscal year. In the current year, I'm expecting some improvement, but still an operating loss.

As I mentioned earlier, we're investing in a number of start-up businesses within business services that will moderate our reported results.

However, we believe these to be very attractive and well aligned businesses that will create value for shareholders in the long term. We expect few additional acquisitions this year and a focus on execution. I'm looking for solid earnings growth, albeit from a relatively small base from this business.

On a consolidated basis, we expect revenue growth to fall within our target range of 10 to 15 percent. We expect fiscal 2003 earnings per share growth of 13 to 18 percent, targeting a range of $2.60 to $2.75 a share.

Finally, let me comment on the other announcement that we've made today, that Frank Salizzoni will retire as Chairman at the end of our annual shareholders meeting in September. Frank has guided H&R Block through some very important times in the company's history. From his early tenure dealing with the separation of CompuServe,

developing a strategic direction for the company to move against, to manage the transition in leadership to this management team and myself, Frank has distinguished himself as an individual dedicated to creating value for our shareholders, and building a company of lasting value to all of our stakeholders. I will personally miss him.

The Board has made the decision, in light of this change, and the emerging best practices related to corporate governance, to take time to assess the best form of corporate governance for H&R Block, to insure that shareholder value, and the integrity that we've worked so hard to establish with our shareholders,

can be extended. In conclusion, we're very pleased with the strong results we're reporting today. I personally appreciate the support that we have from our shareholders and the many associates who are the people that make these results happen. We all remain focused on achieving our objectives for

the next fiscal year, and into the future. And with that, operator, we'd be happy to open the lines for questions.

Certainly. At this time I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. One moment

please for your first question. Your first question is from Mr. Micheal Millman of Salomon Smith Barney.

Thank you.

I guess I have a couple questions. If I understood what you're saying about the mortgage business generating cash above earnings, it suggests based upon the guidance, at least it suggests to us, as a free cash flow could be somewhere around $500 million

for the year. Could you give us some color on whether that's reasonable? Secondly how that might be used, because there doesn't seem to be enough authorization in shares to eat that up.

Also, could you talk a little bit about the investment services in the fourth quarter, even taking in account

some of the non-recurring changes, the loss seemed to be extraordinarily high compared to other quarter losses. And was wondering if there's something unusual in those numbers? And then finally, maybe you could just repeat what you said about retention in different segments.

There was, I think a five percent improvement but didn't get where that was. And a six to nine percent improvement as well?

Sure, I think you're right about the free cash flow, we clearly expect in the upcoming year that we're going to have, I mean, this company, as you know, has tremendous cash generation and

free cash flow generation capacity. And 2003 will be easily, I think, and at least by our estimates at the moment, the strongest year we've ever had. And that is driven by all of our lines of business, including mortgage, where that is correct,

we think that we'll generate about $100 million more cash from that business then we will generate earnings. So I think the, your estimate of free cash flow is directionally correct.

As far as investment services in the fourth quarter, you know,

we certainly went through, in the fourth quarter and insured that the balance sheet and the levels that we had for accruals were as tight as they could be, and as conservative as could be.

So there's a little bit of that that's going on. The market environment has been weak. We also, during the fourth quarter, closed down our equity trading business. That had an effect, both on our bottom line, and our bottom comparisons, and our top line will have a bigger impact going forward on our top line.

So you know, there are a lot of different small things. I'm not sure there's any one thing I could point to. I wouldn't say that there is substantial change in the business' underlying dynamics, other than the fact that going forward we will not be participating in the equity trading side of that business as we have in the past.

How much did that lose last year?

Oh, I don't know the number off the top of my head. I'm going to guess that it's about 10 to $12 million. But I'll have somebody check that while we go on, and see if I can ...

And part of the free cash flow question was how are you going to use it?

Oh, I'm sorry, yet it is. Well, from a capital allocation perspective, clearly we continue to be dedicated to a whole host of things. One is share repurchase. And you're right, the authorization that we have -- what we have remaining on our authorization eight and-a-half million shares --

I guess it depends on what the share price is -- how long that will last. But I think our board is certainly committed to increasing that authorization when and if we need to. And we think it's prudent to extend that. That will be the primary way that we reallocate capital this year. As you know, we raised our dividend level,

so that's a small piece of it. We do not expect to do much in the way of acquisitions. Nor, in particular, very few in the business services line of business. Don't expect that to be a big driver. Some of this will go to debt retirement. We are targeting to reduce our debt-to-cap level further from where we're at right now.

But all in all, I think we've got a -- you know, we clearly will have a lot of free cash flow this year.

And the retention point is good. I'm actually glad you asked, because I wanted to make sure that people understood that.

One of the things that we have hypothesized from the very beginning of our strategy with our tax clients, and trying to do more with them on the financial services side, is that as we deepen the relationship, we would have a more loyal client base. And we have been both researching and testing that idea in a number of ways, but we had not -- up until this year --

had a large-scale sort of set of clients where we could read whether that was really happening or not. This year was the first where we really got some good, in-depth data that we think is maybe even more than directionally correct. It may be sort of beginning to tell us what we can expect the impact to be on our operating model.

For clients who were Express IRA, or bought an IRA from us in 2001, we were able to match those clients against a control group in 2002, and compare the client retention that we got from those clients who the only difference in them was they bought an IRA -- or they opened an IRA with us in 2001.

We saw a five percentage point improvement in retention rate, compared to the control group, from those clients who bought an IRA in 2001, in terms of their coming back to us in 2002. Now, that's on a base of about 24,000 clients who bought an IRA from us in 19 -- or excuse me, in 2001.

so it's not a -- it's clearly a large enough portion of our client base that we think this is a pretty good early read on what this financial partner strategy can be.

The other way in which we have been measuring the impact is for clients who we deal with related to a mortgage.

And deal with is a little bit of a code for -- there's a lot of different way which we deal with clients. We work with some clients, some clients apply for a loan, some of those are denied, some of those get funded, some of those take the loan. And what we know is that for clients that we -- who respond to our -- respond that they are interested in a mortgage --

some of which ultimately get a mortgage, some of which ultimately are denied -- the range of the impact on their retention in the subsequent year for tax purposes only is anywhere from six percentage points up to nine percentage points of improvement in retention rates from having simply dealt with us related to a mortgage.

The highest, as you might guess, is for those clients who got a funded loan, so where they got a loan from H&R Block, that's at the high end -- nine percentage points of improvement in retention. For clients who simply indicated an interest but didn't apply for a loan, we saw a six percentage point improvement in their retention to H&R Block subsequent year. And various levels for people who applied but

either were denied or didn't take the loan. So all in all, we think that is very, very clear and important evidence that we are seeing that this notion that we can improve our operating model from H&R -- from a -- from a tax client perspective by deepening that relationship will have payback not just through our improvements

in cross sell, but also improvements in our core tax business.

Thank you.

Thanks, Mike.

Your next question is from Mr. Michael Hodes of Goldman Sachs.

Hi. Good afternoon, guys. I have two questions on mortgage and a related series of questions on tax.

First, on mortgage, I was wondering, Mark, if you could just comment at a high level on your overall sense of how big you're willing to let mortgage get as a percentage of the overall earnings pie I think depending on how you factor in the debt related to the mortgage business, it's somewhere between --

you know, just shy of 40 percent and just shy of 50 percent of the earnings stream and it looks like it's going to get bigger next year.

Secondly, you know, in mortgage, and this is for Frank, if you could just go into a little bit more detail about the write-up in the

, I want to make sure that I understand it in that the income recognition associated with the write up in the

is actually going to occur

when the cash comes through H&R Block I think you had mentioned that it was going to be just accreted into earnings along a schedule. I thought it has to do with the cash actually flowing through.

And then why don't I pause there and I'll ask you my tax questions?

ernst?

OK. Well, let me say first of all, at a high level -- the high level question about, you know, how big would we allow this business to get. You know, we are operating this business to optimize cash flow that comes out of the business.

So from that perspective to the extent we believe we can continue to operate the business in a -- in a, you know -- in a way that throws off significant amount of cash as it is doing now, I wouldn't say that we are putting limits on that.

Having said that, I don't know that, you know, the sort of dramatic growth that we've seen in the last year is doable nor would we expect that even the

market opportunity to continue to grow at that kind of a rapid pace is going to be there for a large number of years. This last couple of years has been, you know, a little bit kind of unique in that sense.

But again, you know, the limitation we're putting on it is not to say you can only get so big, it's the limitation is we should grow the business

at the rate that we can grow it prudently, with the constraint being that it's got to be done in a cash, you know, throwing off cash as the earnings

as the earnings go. So, you know, I'm not sure that's a specific answer to that question, or the, you know, sort of the, you know, maybe you were looking for what the percentage size we would let it get to be, or something like that.

That's helpful Mark.

OK. Frank?

Michael let's take the, in the fourth quarter we wrote residuals up, or increased the value by $106 million. Let me just walk you through what the accounting on that was, then I'll talk to you how it affects, how it affects earnings.

Basically we debited residuals, increase the residual by 106, and then credited accumulated other comprehensive income for about 62 percent of that number.

Right.

And the rest went to deferred tax liability. Now what happens over the ensuing number of months, again, that could range between 18 to 20 months, 24 months, depending on the remaining life of the securitization before the, before the clean up call,

is that on a level yield basis, that piece out of other comprehensive income will be accreted into revenue, into income, sorry, into earnings.

And it's basically come, and it basically comes in on a disproportionate amount early, and then rolling down very quickly, so you'd look at about 50 to 60 percent of that number coming in over the first 15 months,

with the rest coming in over the last nine to 12 months. So if you go back to what we, what we've reported in the script, we said based on the write-ups that had coming in this full year, which was 151, we expected about 55, 50 to $55 million of that coming in to earnings in '03.

So, OK. And that basically means that even if you were to write no new business in '03, you would expect to get that earnings, all else equal to 50 to 55 million?

That's right. And now,

go back to one of the other comments we made. That is totally independent of the cash that'll be coming in. The cash is going to be coming, and it has nothing to do with what we recognized as earnings. So the cash is going to be a direct reduction to the residuals, income is a function of what gets accreted in off of,

off of the initial booking of the write-up.

So the answer is ...

Another way to put that I think, is that we would expect that the cash flow from residuals this year to be about $150 million, 50 of which will come through earnings, and 100 of which will come in the form of a reduction in the residual.

And I know we're doing apples and oranges a little bit, but that ...

Right, just a normal amortization ... I got you.

But you're right, you know, we will get that earnings based on things we've done in the past.

Got you.

Combine that however, you know, don't leave that hanging there like that.

Combine that with the expected decline in gain on sale that we expect, as we talked about earlier in the script, with rising interest rates, we expect the margins in mortgage to be reduced, so that would be partially offset be some opportunities going on in the business.

And just to square the circle here, if your forecast had been less conservative, or more accurate originally, this increment you expect to come in in '03, would have shown up in fiscal, late fiscal '00 and in fiscal, I'm sorry late fiscal '01 and in fiscal '02?

Actually it probably would have been over the last three years. It would have been higher gain on sale in the last three years.

OK. And then just quickly on the tax side, could you just elaborate on some of the initiatives that you have in place to spur unit growth, I'm not sure if it was Jeff or you Mark that indicated that you're looking

to get more of the revenue growth in tax from incremental client traffic. I was just wondering if you could walk through that? Whether it's higher margin budgets this year, or different kinds of campaigns? And maybe just elaborate on that.

I'm going to have Jeff actually take that one.

I just want to go right -- one back to the mortgage point to make sure that we're clear though. One of the things that we have always believed and done is that we do not want to get out there on a limb in terms of the aggressiveness of assumptions related to the way in which we are booking gain on sale.

And what that -- the consequence of that is that there are times like this where the cash flows just aren't flowing. And we can't deny the value that's coming in. And that's what causes this write-up. We will continue to be as prudent and conservative with the way in which we book earnings out of this business.

And again, as we've said, drive the business for cash earnings, and cash income in most cases, or in all cases.

So that said, we'll let Jeff tackle the tax question.

You know,

probably a couple of key things are we've been doing a lot of testing and a lot of different programs over the last few years. And we're starting to develop a very good sense for which programs work, which ones are expandable, and which ones aren't. For instance, the

media program that we

did this year we believe worked well. And so, those are programs that we'll look at how can we expand them. Our double check messaging was pretty strong. So things like that worked well, and we'll basically look at doing more of what worked well, as just

a continuation of our learning. I think the other thing that we're looking at doing is beefing up our retention. And because, as you know, with losing as many clients as we lose on a year-in and year-out basis, it isn't really because

we're not bringing in new clients, it's because we're bringing in arguably five million new customers a year, new clients a year, in our company and franchise operations. It's really how can we keep more of them. So really putting a focus on retention will lead to a net client growth number that's larger.

The last thing I would say is the environmental issues. Clearly, with the market growing kind of the .3 percent overall that it grew this year, that's an anomaly. And we would expect the market to grow at the normal rate of population growth, or the aging of the population growth, as people begin to file taxes.

And so, we would expect that to pick up, and combine that with tax law changes which really have an additive effect. This year we would expect to see some tax changes that would actually impact behaviors more than they did in the prior year. It's really those factors combined that give us a high level of confidence that unit growth

will become stronger over the next several years.

You know, I want to add something to the environmental point. We were all -- I think most people in the industry are a little bit surprised that the IRS numbers suggests that the number of filers in the United States only grew at .3 percent. We have research in our data that we think starts to explain a bit of that.

And that is, there is a significant number of people in the United States who, because of the condition of the economy, no longer filed this year. We saw a substantial number of the people who did not come back to H&R Bloch. The reason they didn't come back is because they did not have to file this year. And that explains at least one,

and maybe two, percentage points of unit growth that we would normally have seen that didn't occur because people were not required to file, because of their personal family economic situation. Now, as things like the economy starts to pick up, and the employment improves for some people at the margin,

those are the kind of clients that we traditionally have been the first choice for service. So we think that, you know, that that's part of what's going on in the environment.

What condition the economy will be in when we get to this point next year I guess is still an open question, but we know that was affecting us.

Got you. Thanks so much.

Thanks, Michael.

Your next question is from Mr. Chris Gutek of Morgan Stanley.

Thanks. Hi, Mark, Frank, and Jeff.

Actually, Mark and Frank, I'd like to ask a follow-up to the last question there regarding the company's trade-off going forward between high volume growth and high pricing growth. The

corollary to the previous question would be to say

if you have good volume growth opportunities, what about the pricing growth opportunities? Should we interpret that you think you have a little bit less pricing power than you may have thought and that's maybe one of the reasons why you're not getting focused on the growth and revenue for return?

And also, it sounds as if after two years of having a pretty significant mix shift away from lower income toward middle income tax payers that you're now happy --

about happy with where your client mix is and you're not inclined to try and drive that shift further up income -- up the income ladder.

Let me -- let me say a couple things and I'll have Jeff join in as well.

Clearly our continued focus is to move our client base more to -- more upscale, so don't take anything we've said to imply otherwise.

And in fact, we would expect that that will lead to price increases purely that come from a higher -- greater complexity of the client base that we bring in. So none of that is to suggest that we've changed our focus there.

Also we -- I wouldn't way that we feel like we don't have pricing power. In fact our data would suggest we still have very high -- extremely high client satisfaction relative to other financial service companies or companies that provide service to consumers. So, you know, that's not the case.

The one thing I want to emphasize which, you know, we made this point last year and I'm going to make it again this year -- at this stage in our planning process, if we overestimate revenue growth and spend against it, we can get ourselves in trouble because you can't pull the money back once you've spent it once January gets here. So for planning purposes, we used

nine percent revenue growth and 60 basis point margin expansion for our plan. We clearly don't have pricing set for next year. We will develop a clearer picture of unit growth expectations as the year progresses and our marketing plans come together. So you should not take this as, you know,

what we are predicting is going to be the outcome. It's more of where we're at with our own spending plans internally.

I mean I would just add that we believe -- we believe that the unit growth side of the equation is complex and we want to make sure we put

appropriate focus on that to build share when the time is right. And frankly with the -- with the paid preparer usage continuing to grow, with tax change complexity in the environment, and now identifying some programs that are working, we really want to put focus to driving unit growth and have pricing follow

alongside that as opposed to have it be the other way around.

OK. And you guys didn't implement the demand-based pricing initiatives this year. I guess the question would be why would you not do that next year? Seems like a slam-dunk. Is there a reason why you would not do it?

There is no reason why we would not do it except for we have not developed a pricing strategy for next year. Just like we talked about in January, we think it's a good opportunity.

We think the marketplace will accept it, but as we saw happen this year, we had that anomaly and complexity. We don't want to overprice ourselves and have a problem with clients. So we'll look at the marketplace and come January, we'll tell you exactly what we'll do with demand pricing.

OK. Real quickly, the online business continues to generate losses,

in spite of some pretty healthy price increases and some add-ons, the live advice, et cetera. What will it take to hit profitability or actually to make a healthy amount of money in that business? Or will that likely not occur in the next few years?

You know, I suspect that there are a couple of things that we are being negatively impacted in the online space. I think the first

one is we, the online space is not growing the way everyone believed it would. If you go back and look at Forrester's projections in the market, where you say two, four, six times growth, we're just not seeing that kind of growth. And frankly we doubt that growth is available in the marketplace period.

The other thing, the other thing that is another important factor that's out there is some of the, some of the portal distribution arrangements that we had when we went into them a few years ago, are what I would say are richer arrangements than we might enter into today.

And so from that perspective we have financial baggage that

we are carrying along with our pricing model. And we will begin to see those agreements dissipate and be repriced consistent with the conditions, the E-commerce conditions today, which, Chris, I think will help us. The other thing we have to look at frankly, is as clients decide to attrite out of a base,

we think there may be opportunities to more clearly focus them to an H&R Block online solution. And again, when you look at five million people leaving the base year in and year out, we think that's a really attractive market for us to try to penetrate.

So all of those items said, we think there's some opportunity,

but frankly we're going to continue to look at that and rationalize the economics. One last thing I would say, is while the E-commerce side of equation has not been as robust, the results have not been as robust or as rich as we might have liked, one thing that we've learned is that having a broad presence on the Internet has been very

good for us in that it has driven significant business to what we call an office locator.

And the office locator is basically an online tool for our clients to locate one of our offices. And that got this year, I'm doing this off the top of my head, but I believe almost a million hits, and many of those people ended up at our offices.

So both returning clients and new clients are able to access that E-commerce site, and that is basically because we're out there trying to distribute our online products, and as they, really a byproduct, were driving more business to our retail offices.

OK, great. And one final quick question, if I could for Mark. In the mortgage segment, Mark I

believe you're more or less officially on the record as early as February of this year, February of this year saying that you saw that the earnings for the mortgage business could be flat in '03 versus '02. I'm just curious, is that, if those comments back then were made with the understanding that there could be a good write-up benefiting earnings, or if the incremental 50 to $55 million talked about on the call today truly is incremental, and now your

guidance for slight growth, ten to 15 percent growth in the mortgage, pre-tax could be therefore conservative?

Well, I know the math you're doing, and I'll, we obviously monitor the valuation of those residuals on a, you know, weekly, daily, monthly basis,

so we can see this thing coming, you know, to a large degree. We took the write-up in I think it was the end of March, within this quarter, so we knew it was coming then. But what I'd tell you is, you know, the wildcard in all this, which has always been the issue is, is you don't know what kind of margin you're going to get, you know, like when

you finally have your loan sold.

And if I could predict that with greater certainty, I guess I would know exactly how to look at it. What we knew back in February when we were kind of saying we think it could be flat, was not that the write-up was coming, but rather

that we didn't think that the decline in gain on sale was going to be as rapid as I think many people believed it would be, based on where we thought interest rates were going. And, we also knew, and we still believe, that our origination volumes will continue to grow.

They won't grow at 70 percent-plus, as we saw this year. But we think they're going to grow very nicely, and early evidence is that that's continued to be the case already into this first quarter.

Great. Thanks, guys.

Yes?

My phone line's dead.

Operator, are you there? Do we have the Operator here?

Yes, sir.

OK.

Your next question is from Mr. Thomas Russo, of Gardner, Russo.

I may have redialed it in twice with that pause. Ongoing support from shareholders, Mark, has been well-earned. So congratulations for a great year.

Thanks.

Mark, Frank, and Jeff -- let's see, Mark, you've long suggested that you wouldn't mind coming out of the RAL business. And eventually think the market will move that way. But this year the RAL profits have been pretty dramatically up.

So I'm curious about your willingness also to pull away from it again, given that's it's growing so much in terms of profitability. That's a question for Mark.

Jeff, you had mentioned that the pool of people who leave each year, that five million or so tax preparer clients who do leave,

might be an interesting pool for you to market for the online tax prep business. Is there something unusual about the pool of people leaving, versus those who stay? Or is there something about their demographics or their needs that make them a more rich pool to tap into as you look to market the online services?

I guess those would be the two questions. Most of the rest have been asked, so thank you.

Thanks, Tom. On the RAL point, you're right. We have been talking -- I've been talking for some time, that RALs are problematic for us as a company.

Yet, this year our earnings results coming from that line of business, at least the spatial piece of that business, is strong. The strength in that is driven by a couple of things, most notably the fact that the bad debt levels in that business dropped this year,

and the prior year collections were stronger than we had seen in the past. As a result of that, we saw a nice uptick in the earnings of that business, or that participation. Not sustainable. We will have to deal with

that in other ways going forward. But obviously, everything -- you know, this was a year where, from an operational perspective, everything worked, which is wonderful. We didn't have any hiccups with the IRS. We didn't have hiccups with collecting on bad debts. We didn't have virtually any

hiccups along the way. And at a time when you don't have that, you can get very efficient in that business. And we saw that this year.

Having said all that, my view has not changed. And in fact, one of the disappointments of the past year is that we have not made

further or greater progress on dealing with RALs in the context of the brand and where we're trying to take it. We did introduce a number of new products in the -- sort of in this line of business that I think help us start to reposition what we do for our clients,

relative to refund loans

refining the category, redefining the way in which refund loans affect the company - affect the client acquisition efforts we can drive. We have not - we did not make progress on that the way I would have liked.

We are dedicated to pushing that forward this year. We have plans. We're developing plans to use alternative ways of positioning refund loans in our - in our business mix. We've done some testing of that

in the past and we'll be doing much more robust testing of that this year, all anticipating both the day when RALs won't exist, but maybe more importantly trying to remove the negative taint that is associated with them from our brand.

Good. Thank you, Mark.

And Tom, on the - on the question on kind of proactive migration, not - probably not surprising, we do some research - try to find out where do our clients go if they decide not to return back to us. So we have a sense for what percentage of our clients actually go to software and go to online.

And it's not a - the majority of clients do not do that. The majority of clients, as we've talked about before, have a psychology that is they want assistance and therefore they're going to go to someone else to get assistance. So it's really not a demographic question. We don't disproportionately lose people who might fit that demographic profile.

And what we really - a challenge for us is can we either number one create broad enough awareness that people migrate on their own through a solution that makes sense for them or number two can we create basically a model that allows us to predict who it is that's going to go and try to proactively create the opportunity for them. And we've done a

little bit of that work and we're continuing to build upon that and I suspect that ultimately it will be a combination of both of those approaches.

OK. Thank you, Jeff. And then, Frank, for you, the last question - in a time like this when cash flows are greater than the earnings contribution from the NIM activities relating to interest rates,

what will happen if you have just the reverse conditions take place? Will with those same pools of mortgages there be an occasion where you will be out cash in a - in a fashion beyond the operating income contribution that you're accreting? Or is this - is this pool that's been so accounted for in this interval

finished having an impact on the cash flow statement and the income statement?

The inverse is possible, but interest rates would have to go up significantly, and we don't anticipate that happening within the life - within the life cycle of the securitizations that are - that are remaining. At this point, basically the cash flows that are - that are anticipated

are the - are the reasons for the write up that we took and the size of that write up that we took, so we don't anticipate there being a negative impact of the reverse of what we've just seen.

OK. Thank you. Bye.

Thanks.

Your next question is from Mr. Joe Lammana of William Blair.

Yes, you talked about this a little bit, but I was wondering whether you can quantify or at least estimate, you know, of the nine percent increase in average fee per tax client served, how much of that came from I'm going to say pure price increase, same customer, same type of tax form versus customers requiring more complex returns?

Yes, Joe, the price increase across the base was in the

range. And about two to three percentage points came from complexity.

And the balance

related to this adjustment ...

Right.

The spin, the tracking system adjustment that artificially increased price and artificially decreased the client growth numbers.

OK. And I'm not sure, when you talked about earlier about having not rolled out the demand based pricing this year, what the reason for that was?

The real reason was, when we set this up, we saw this as an opportunity to create this incremental, basically this incremental margin growth. And very early in the season we saw that the rate reduction credit, you know, which was something that we had not planned on, was creating a very significant amount of incremental fees.

And we had a concern that by dropping in the demand pricing on top of the rate reduction credit, that we might run the risk of overpricing or overburdening those people.

And so we did not, we decided early to pull back on it, we felt that we achieved a reasonable amount of price increase related to that segment,

and we did a little bit of testing with it in the second half, and what we wanted to do is make sure that didn't create any issues. So we had, we really turned it in to more of a learning opportunity. But again, we didn't do any system-wide rollout.

Yeah, the other thing you should know is that, you know, from our business mix, while most people think of the tax season ending in April, and that's when the big rush is, the fact of the matter is for us,

most of our units occur in the first peak, which is the late January, early February period when we chose not to implement this. So while we implemented it on a little more limited scale the second peak, which is the end of the season, we didn't get the sort of full benefit or full effect of it because we skipped the first peak.

OK. Thank you.

Thanks Joe.

operator|||||m:

Your next question is from Mr. Steve Farley of Farley Capital.

farley|Steve|Farley||Farley Capital|m: Yes, two quick questions. In the mortgage business, to what extent did the growth in originations come from an increase in your market share, versus a growth in the overall market?

And secondly, what was your deferred revenue from the peace of mind product at April 30th, 2002?

Somebody look up the deferred revenue for, while I take the first one. We saw a slight increase in our market share, although not dramatic last year. There was some consolidation in the industry, so there was a little bit of movement, and the

data is a little bit unstable, but in general much of what we saw, we saw an up tick in our market share last year, but the overall market probably showed 30, 35 percent growth, while we were up 70 percent plus in the, in our originations.

While that means we gained market share, you know, the 70 percent plus is not, you know, is not purely driven by something we were doing. It was also being driven by what's going on in the market. Peace of mind, I'm looking around, we're still tracking that one down.

OK.

I will, we'll announce it when we get it.

Thank you.

Thanks, Steve.

operator|||||m: Your next question is from Mr.

of William Blair.

neff|John|Neff||William Blair|m?: Hi everyone. It's like

. Question concerning the investment services business, but just given the continued losses and the,

now the strategic shift from a trading revenue model to more of an advice driven model. What's the rationale for not taking an impairment charge for that business?

Sure

, we did a, you know, sort of an extensive analysis of that business and, you know, under both the required standards

as well as looking at the estimated market value of that business compared to outside market comps. And it was based on those analysis and the expected, what basically we did a DCF analysis on the business, we also did a market comparable valuation on the business,

and it was based on that and the carrying value that we have for the business that we concluded there was no impairment, and no impairment charge to be taken. Now, that is something obviously that we are watchful of. It's not a cash item, as you know, but it's something we're very watchful of.

We're not looking to have our balance sheet carrying out that really don't have this value. But I can tell you, I think we did a reasonably conservative look at this, and did not find an impairment when we did the -- sort of prescribed, as well as the market-based, analysis.

The shift in strategy is something that we've been working on for some time. So I wouldn't say that that is new news. But it is something that I think we are starting to gain some real traction with in the business. And while that will take time to start showing up in the bottom line, I can tell you, culturally we're making some good progress there.

So I'm not sure that would necessarily alter the carrying value look at this, necessarily.

Thank you.

There are no further questions at this time. Mr. Ernst, do you have any further comments?

Great. Well, with that, let me -- I apologize, Steve Farley, we don't have the answer to your peace of mind deferred revenue question yet,

but when we get it, we'll have somebody give you a call with that information. And if anybody else wants it, feel free to call here, and we'll be happy to give you that piece of data.

I want to thank everybody for joining us today. We are clearly pleased with the progress that we're making, and appreciate the support that we get from all of our associates,

as well as all of our shareholders.

Thanks very much.

Thank you all for participating in this afternoon's conference. You may now disconnect.